Libya Tribune

By Tim Eaton

A new effort to manage the economy, one that brings together both sides of the war with international partners, is an essential step forward.

There has been a stark contrast between messaging coming from the international community and trends on the ground as Libya’s latest bout of civil war enters its eighth month.

Led by Germany, some states have been trying to build consensus for a ceasefire ahead of a summit that is expected to be held in Berlin in the next few months.

Today marks the date of one of the final planning meetings for the summit.

The increasing use of drone technology, airstrikes and further influxes of fighters trend points in the opposite direction. Warring groups in Libya continue to receive support from external states, undermining international efforts to de-escalate the conflict.

A UN arms embargo goes largely unenforced. As the Berlin process unfolds, there is little evidence to suggest that these external states will shift their positions.

The launch of Field Marshal Khalifa Haftar’s Libyan Arab Armed Forces (LAAF) offensive on Tripoli in April sunk a UN-planned ‘national conference’, intended to be held less than two weeks later, to negotiate a framework for transition out of Libya’s governance crisis.

Yet, Haftar has so far failed in his objective of capturing Tripoli. While his offensive continues, had he the capacity to capture the city, he would have done so already.

This has created a conundrum for peace talks: there appears to be little chance of negotiating a deal with Haftar, while it is also hard to see how a deal could be reached without him.

The field marshal has little interest in accepting a withdrawal, even a partial one, of his forces. His opponents – who have found unity in their shared efforts to defeat Haftar’s forces – will not accept a ceasefire that leaves the LAAF on the hinterlands of the capital. Similarly, a deal apparently agreed in Abu Dhabi between Haftar and Prime Minister Fayez al-Serraj in February is also dead in the water.

Amid this logjam, there has been an increasing interest in the economic content of the Berlin summit.

Countries supportive of Haftar argue that his alliance has legitimate concerns over the management of Libya’s economy and, particularly, the dominant role of the Tripoli-based central bank and its governor in supporting armed groups.

For some within these countries, changing the leadership of the central bank and a finding means of limiting the dominance of the UN-backed Government of National Accord (GNA) over the state’s resources – thus reducing flows of funding to armed groups fighting Haftar – could present a point of agreement in Berlin.

But their focus on financial management in Tripoli is not mirrored by interest in holding the rival central bank in the eastern city of Bayda – an institution unrecognized by the international community – to account for its pursuit of its own monetary policy.

This is built on approximately $23 billion of unsecured debt from commercial banks and $11 billion of currency supplied by Russia.

Indeed, very few of the conversations surrounding parameters for Berlin contain details of what would be asked of eastern-based actors beyond pursuit of an audit of the Tripoli and Bayda central banks (only the Tripoli bank is recognized by the international community).

Clearly, the GNA and its allies would have no incentive to accept provisions that limit their means to mobilize resources for the war while its opponents do not receive the same scrutiny. 

However, it is possible to capitalize on the broad interest in economic content to reach some points of agreement over the management of the economy and state institutions.

Rather than seeking to replace individuals aligned with one faction for those aligned with another, or expecting asymmetrical concessions from the GNA and its allies, this effort must instead focus on structures and processes that exacerbate the conflict and represent major grievances for the warring parties.

Importantly, this would include the establishment of a system of transparency and accountability for the management of Libya’s finances.

The opacity of current processes enables the support of patronage-based networks with no effective oversight.

Linked to this, the development of effective processes for budgeting and allocating funds could help to reduce graft.

And, finally, rationalizing the role of state institutions to agree their roles and responsibilities, creating the room for reforms to Libya’s system of state employment and subsidies through provision of direct payments to Libyan citizens, is essential.  

An economic commission that comprises members from across political and institutional divides – receiving political support from international powers and technical support from international financial institutions – could be an effective approach.

Such a commission could match an inclusive, Libyan-led process with international support to progressively harmonize economic and financial policy between rival authorities and develop consensus for a process of institutional reunification in Libya.

This would constitute a major element of an eventual political settlement and reduce the risk of a limited set of actors capturing the system at the expense of the others – an outcome which would likely result in future bouts of violence.

Such a commission would offer a means of addressing a key driver of the conflict by decentralizing aspects of Libya’s governance, moving away from the dominance of Tripoli and the current winner-take-all system. 

These issues cannot be put to one side, to follow progress on the security front. The remarkable resilience that Libya’s economy has shown over the last seven months should not be taken for granted.

It has become increasingly difficult for Libya’s institutions to insulate themselves from the conflict as both sides seek to mobilize resources to sustain their war effort.

The LAAF is increasingly looking to sideline civilian authorities in eastern Libya. On the other side, the GNA has found means of routing funds to armed groups fighting Haftar.

In September, a dispute over the supply of jet fuel between the LAAF and the National Oil Corporation resulted in the establishment of a parallel Brega Petroleum Marketing Company, the state-owned company that possesses a monopoly over fuel distribution.

Meanwhile, other major problems lurk under the surface. The banking sector is in an increasingly perilous state and debts continue to mount all around, with those in the east not accounted for by Tripoli’s official authorities.

Through the establishment of an economic commission, the Berlin process provides an opportunity and – most importantly – a mechanism to address these problems while also helping to maintain the basic functionality of the state.  

Even if a ceasefire deal does not materialize, initiating negotiations about the future shape of the state and its economy would be a significant step forward.

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Tim Eaton – Research Fellow, Middle East and North Africa Programme. His research focuses on the political economy of the Libyan conflict.

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